MovieChat Forums > The Big Short (2015) Discussion > What exactly did they do in this movie?

What exactly did they do in this movie?

posted 4 years ago by beavis (3249)
10 replies | jump to latest

First I would like to say my father is a banker and he is not raining in money, he is 69 and still hasn't retired yet, he gives out loans now but used to be a banking branch manager when I was younger, so you could say he is pretty small time , he's republican and I try to be socialist in a capitalist society.

I understand the Adjustable Rate Mortgage loans had payments that most people couldn't pay and get in over their head this and that. In the movie the characters made a huge profit from betting against the economy and how corrupt the system was or is still maybe.

What exactly did they do in the movie? buy a bunch of ARM loans and sell to the big banks because they knew they would buy them?
and why did the banks have to buy them?

It's nice that the celebrities try to dum it down for us but it is a bit distracting , god knows we all want to be rich and famous for some talent. I thought an intelligent discussion for someone who is a bit confused would be beneficial. I just want to know what exactly they did to bet against the system. Were they all ARM loans?

I knew it was a bad thing but I have been poor my entire life and the 2008 thing didn't really effect me. I am not in real estate or into any of that crap like owning property or renting or flipping so it didn't really effect me, plus I am in a small town.
my problem is I get a credit card and then can't stop using it. so credit cards are a bad idea if you're poor, probably if you're rich too, fuck credit cards

[–] Redsfan001 (6003) 4 years ago

My beef with this movie is that doesn't really show the banks point of view well. If your competition comes up with a new way to cut risk 5 miles wide and only 1 foot deep, gets more business and their share price rises, you are probably going to do the same thing if you believe in the equation right?

Some of the smartest financial minds believed that this would work.

Some equally smart people viewed the new equation as flawed and shorted stocks (bet against the market) and made billions.

[–] beavis (3249) 4 years ago

what are you exactly doing when you're betting against the mortgages and shorting stocks? what are you buying? because they sold something at the end of the movie obviously.

so you're shorting mortgage stocks? how do you short a stock?

I thought they invested in bad mortgages I didn't realize stocks were involved.
I get stocks you buy low and sell high lol or you go longterm in an index fund

[–] fc31 (4559) 7 months ago

You buy CDS, which is an insurance you buy on bonds you don't own, in this case it was mortgage backed bonds or CDOs containing primarily mortgage bonds, when mortgage bonds defaults on their payments you get a pay out from insurers, before they go bust that is.

Image you can buy insurance on your neighbour's house, even on his life, that is CDS. What would you do after you bought them? Too many people bought the insurance, they need to be paid.

That is why government bail out is important, without government bail out who is going to pay the insurance money on mortgage bonds.

CDS is not just sold by insurance companies, a lot of investment banks sold them too.

Those in the movie are the main benefactors of government bail out, other than banks and insurance companies that is, so they are not heroes. They are ones hoping your house is on fire, and you get burnt to death inside of it, so they can collect insurance, and they demanded government bail out the banks and insurers.

Now who do you think started the fire?

[–] beavis (3249) 4 years ago

[deleted]

[–] beavis (3249) 4 years ago

so to short a mortgage bond stock you buy high and sell low? i'm confused man, the movie throws all this business jargon around but don't explain the premise of the movie.

how the hell is the average viewer supposed to know how to short stocks

Those scenes with the celebrities not acting or playing themselves explaining things were distracting especially when you half assed are watching the movie,
certain parts they get my attention and other parts I have to have subtitles on.

[–] Redsfan001 (6003) 4 years ago

I have never shorted a stock, so I don't know the specifics. I do know that it is very dangerous because the market tends to go up with time, and you can't do it when the stock is in freefall.

A better movie to see is 'Too Big to Fail' ,it is a more mature work without all the 'hip' clips etc..

[–] jgm4661 (80) 7 months ago

The title is kind of misleading. The short was figurative not literal. What they bought was actually a form of insurance against a bond defaulting called a default swap ) CDS.

So you insure a bond w a value of $100 say and pay 2%/yr as an insurance premium. If the bond defaults, you get paid $100. Like if you insure a house and there is a fire , you get replacement value.

These bonds default if ~ 8% of the mortgages in them defaulted ( the bond pays say 8% interest, but if it loses 8% of teh mortgages it pays no interest and is worthless or in default) . So they saw that many of these mortgages would default and made this bet.

[–] bsantosu (155) 4 years ago

I'm not sure about the specifics of the instruments they used but shorting a stock basically works like this: You borrow 100 shares of stock at $100 a share ($10,000). You promise to pay back that person the 100 shares of stock in 2 years. Two years from now the stock is only worth $10 a share. You pay back the 100 shares ($1,000).
There is interest involved. These are called premiums, that is partly what Mike Burry's investors were freaking out about.

[–] TheArgentinian (6429) 3 years ago

>What exactly did they do in this movie?

No one knows. But it's provocative.

[–] beavis (3249) 3 years ago

lol You got some dogecoin man? I need my fix